Why Do Firms Differ and How Does It Matter? A Revisitation

Richard R. Nelson

Professor Emeritus, George Blumenthal of International and Public Affairs, Columbia University, New York, NY USA, Visiting Professor University of Manchester, Manchester UK rrn2@columbia.edu

JEL Classification: D01, D21

Abstract

It has been seventeen years since I published a paper (Nelson 1991) concerned with the determinants and consequences of firm differences. I have been pondering the question of whether I now have anything useful to say about it that I did not say then. I don’t know, but let me give it a try. I begin by reflecting on what we might learn from studies of biological evolution about the importance of narrative and qualitative observation in analysis of the factors behind and consequences of firm differences. Then, I turn to commentary and criticism of what I think has been the dominant point of view (certain authors clearly are exceptions) orienting the studies of firm differences and industrial dynamics using the available longitudinal industry-firm data sets. Finally, I lay out some of my own rethinking regarding the sources and consequences of firm differences.

Keywords:

Firms, Variation

Acknowledgments

This paper was originally presented in a conference on firm differences, hosted by Maison Franco Japonaise, held in Tokyo in November 2008.

References

Levin, R., Klevorick, A., Nelson, R., and Winter, S. “Appropriating the Returns to Industrial R and D.” Brookings Papers on Economic Activity 18 (No. 3 1987): 783-820. [https://doi.org/10.2307/2534454]
Mansfield, E. “Entry, Gibrat's Law, Innovation, and the Growth of Firms.” American Economic Review 52 (No. 5 1962): 1023-57.
Marshall, Alfred. Industry and Trade. McMillan Press, 1919.
Nelson, R. “Why Do Firms Differ and How Does it Matter.” Strategic Management Journal 12 (Winter 1991): 61-74. [https://doi.org/10.1002/smj.4250121006]
Nelson, R., and Winter, S. Evolutionary Theory of Economic Change. Cambridge: Harvard University Press, 1982.